Protection of Investment Act (22 of 2015)

Author: Gary Moore

Date: 10 August 2018

The Protection of Investment Act, 2015[1] declares that it is an Act to provide for protection of investors regardless of nationality[2] and their investments.[3] It commenced in July 2018.[4]

The explanatory memorandum which accompanied the Bill[5] stated that the intention was to “clarify” provisions typically found in Bilateral Investment Treaties (“BITs”[6]) by “codifying” them, and “ensuring compliance with the Constitution”.[7]

(Background—BITs. South Africa after 1994 entered into BITs with developed[8] countries keen to encourage foreign investment in the new South Africa,[9] and developing countries. The official[10] Treaty Register[11] indicates[12] that South Africa entered into 49 BITs.[13] Only 22 of these BITs came into force, the other 27[14] not having been ratified.[15]

(BITs’ clauses about compensation for expropriation. South Africa’s BITs stated[16] that investments by an investor of a contracting state may only be expropriated for public purposes or in the public interest.[17] They guaranteed, in event of expropriation, compensation that is described differently in different BITs. Some clearly stipulated that compensation should amount to the investment’s “value”, “market value” or “fair market value”.[18]

(Other BITs[19] provided for “adequate and effective” compensation.[20] It is unclear if this meant “full” compensation, or merely “equitable” compensation[21] consistent with South Africa’s current rule that compensation should be “just and equitable”.[22]

(BITs—Termination. In 2010 the minister[23] said that a review[24] concluded that the link between BITs and foreign investment was ambiguous, BITs posed risks to the State’s ability to pursue its Constitution-based transformation agenda, and the Cabinet had determined[25] that first-generation BITs[26] should be reviewed with a view to termination.[27]

(The BITs commonly provide that they would be in force for a minimum period of ten years,[28] or more recently 15 or 20 years,[29] whereafter a party may terminate it.[30] Most early BITs had been[31] in force for this minimum period.[32]

(Of 22 BITs that were in force,[33] South Africa has terminated ten,[34] starting in 2013.

(Of the other twelve,[35] notice has been given for one to terminate in 2019[36] and another in 2021.[37]

(BITs—Unequal treatment. BITs which, on expropriation of an investment, require as compensation payment of its “market value” or “actual value” confer protections on foreign investors that are not conferred on local investors.

(This arguably violates the Rule of Law, by giving privileges to a select few only.[38]

(The converse would also be true: The Constitution, by authorising payment of merely a “just and equitable” amount as compensation for expropriation,[39] exposes local investors to risks against which foreign investors were protected by BITs. This too can be said to violate the Rule of Law, by imposing disadvantages on all except a select few.)

Act requires national treatment in “like circumstances”. The Protection of Investment Act provides that foreign investors[40] must “not be treated less favourably than” South African investors, in “like circumstances”.[41]

The Act stipulates that “like circumstances” require an overall “examination” of “the merits of the case” by taking in account all the terms of a foreign investment, including –

The effect of the foreign investment[42] and cumulative effects of all investments,

the sector the foreign investments are in,

the aim of “any “measure” relating to foreign investments,

the factors relating to the foreign investor or foreign investment i.r.t. “the measure”,

the effect on third persons,[43]

the effect on employment and

the effect[44] on the environment;[45]

the examination must not be biased towards[46] any one factor.[47]

It is unclear if the “examination” must be judicial or administrative. The provision[48] violates the Rule of Law by being vague, in not indicating clearly when foreign investors must be treated no less favourably than South Africans, and when they may be.

The Rule of Law requires laws to be[49] intelligible, clear and predictable.[50]

The provision is so vague that the question of whether or not a foreign investor is entitled to national treatment is in effect discretionary. A foreign investor may receive less-favourable treatment if, after examination, the government in its discretion determines that no “like circumstances” exist that require that investor to be treated as favourably than locals.

This violates the principle of the Rule of Law that questions of legal right and liability should[51] be resolved by law, not discretion.[52]

Regulations can confirm foreign investments have no special protection. The Act states that the Minister[53] may[54] make regulations regarding[55] any matter the regulation of which may be necessary to achieve “the “purposes of this Act”.[56]

The Act’s stated purpose is[57] to affirm the State right to “regulate investments in the public interest”, and to confirm “the laws that apply to all investors and their investments”.[58]

This is confusing and contradictory: The Act states that it protects foreign investors,[59] but its regulations could simply confirm the general laws[60] that apply to all investors.[61]

This violates the principle of the Rule of Law that laws should be clear.[62]

The Act provides merely that investors have the right to property i.t.o. Constitution’s property clause.[63] This adds nothing to existing law. The Act serves no purpose.


[1] Protection of Investment Act 22 of 2015.

[2] Protection of Investment Act s 1 sv “investor”.

[3] Protection of Investment Act, Long title.

An investment is an enterprise established, acquired or expanded by an investor committing resources of economic value over a period in anticipation of profit or the holding or acquisition of shares of an enterprise, and for these purposes an individual or company may possess immovable property and other assets. Protection of Investment Act s 2(2)(d) read with s 1 svv “investment, “enterprise”.

[4] On 13 Jul 2018. President’s notice 395 of 2018 (Gazette 41766 of 13 Jul 2018).

[5] Protection of Investment Bill 18 of 2015.

[6] A BIT is an agreement between two countries governing the treatment of investments by individuals and companies from one country in the other. Geo. Mason L. Rev. (2006), J Wong, “Umbrella clauses in Bilateral Investment Treaties: Of breaches of contract, treaty violations, and the divide between developing and developed countries in foreign investment disputes,” pp 135–136.

BITs usually deal with compensation for expropriation of the investment, and dispute-settlement mechanisms (both state-state and investor-state). United Nations Conference on Trade and Development (UNCTAD), “What are BITs?” (17 Aug 2004).

[7] Protection of Investment Bill, Explanatory memorandum, par 1.5.

[8] Principally European.

[9] Bowman Gilfillan, 8 Nov 2013, “Bilateral Investment Treaties – a shield or a sword?” (J Lang).

[10] Dept of International Relations and Cooperation: Office of the Chief State Law Advisor: Treaty Section .

[11] South African Treaty Register .

[12] Estimates vary.

[13] South African Treaty Register ibid.

See also Bowman Gilfillan, 8 Nov 2013, supra.

[14] The BITs with Algeria Angola, Canada, Chile, the Czech Republic, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Guinea, Guinea, Iran, Israel, Kuwait, Libya, Madagascar, Mozambique, Qatar, Rep. of Congo, Rwanda, Sudan, Tanzania, Tunisia, Turkey, Uganda and Yemen.

[15] Ratification is the act whereby a State establishes on the international plane its consent to be bound by a treaty. Vienna Convention on the Law of Treaties, 1969, art 2(1)(b); see also arts 11, 14 and 16.

Ratification brings a treaty into force by exchange, or deposit, of instruments of ratification. Lord McNair, The Law of Treaties, 1961, p 129.

Ratification of bilateral treaties is usually by exchange of ratifications. In the case of multilateral treaties, a depositary usually collects parties’ ratifications. U.N. Treaty Collection: Overview: Glossary sv “ratification”.

A period to ratify a treaty gives a contracting state a period of time to get domestic approval for the treaty and enact any legislation to give domestic effect to it. U.N. Treaty Collection, ibid.

[16] The precise terms vary.

[17] And on a nondiscriminatory basis.

See, e.g., Agreement between governments of South Africa and Italian Republic on Promotion and Protection of Investments (9 Jun 1997), art 5.2.

(Notice for the termination of this BIT has been given (see below).)

[18] Immediately before expropriation or before the impending expropriation became public knowledge whichever is the earlier. E.g., Agreement between governments of Republic of South Africa and United Kingdom of Great Britain and Northern Ireland for Promotion and Protection of Investments, sgd. 20 Sep 1994, art 5(1).

(This BIT has terminated (see below).)

Others BITs referred to “actual”, “real” or “genuine” value (criteria said likewise to imply market value). Bowman Gilfillan, 8 Nov 2013, supra.

[19] E.g., Agr betw South Africa and Sweden on Promotion and Reciprocal Protection of Investments, sgd. 25 May 1998, art 4(1)(c).

[20] US secretary of state Cordell Hull coined the wording in a 1938 letter to the Mexican government demanding “prompt, adequate and effective” compensation for Americans affected by expropriation of Mexican farmland.

[21] Patrick J Smith, “Determining the Standard Compensation for the Expropriation of Nationalised Assets: Themes for the Future”, 1997 Monash Univ L Rev 159.

[22] Reflecting an equitable balance between the public interest and interests of those affected having regard to all relevant circumstances, of which market value is but one. Constitution s 25(3).

[23] Of trade and industry.

[24] The review was initiated in 2005. Bilateral Investment Treaty Policy Framework Review, Govt Position Paper, Dept of Trade & Industry, Jun 2009, p 12.

[25] In Apr 2010.

[26] Which South Africa had signed shortly after 1994.

[27] Minister of Trade & Industry Dr Rob Davies, at launch of U.N. Conference on Trade and Development’s Investment Policy Framework for sustainable development (26 Jul 2012), Univ of the Witwatersrand.

[28] E.g., Agr betw govts of South Africa and France on Reciprocal Promotion and Protection of Investments (sgd 11 Oct 1995), art 11.This BIT has been terminated (see above).

[29] E.g., Agr betw South Africa and Sweden on Promotion and Protection of Investments (supra) art 10(2).

[30] Usually on a year’s notice. Investments made before termination would be protected for another ten years.

[31] Or would soon have been.

[32] Bilateral Investment Treaty Policy Framework Review, supra, p 35.

[33] ACTS Online News, 29 Oct 2013, “Cancellation of bi-lateral trade agreements sows confusion” (Ivo Vegter).

[34] One in March and another in December 2013, one in April and six in August 2014, and one in March 2017.

The terminated BITs are Agreements for the promotion and protection of investments (titles vary) with Argentina, Austria, the Belgo-Luxemburg Economic Union, Denmark, France, Germany, the Netherlands, Spain, the Swiss Confederation, and the United Kingdom. See South African Treaty Register (accessed 14 May 2018).

The trade-and-industry minister said that they had served their purpose. The European Union’s trade commissioner disagreed, saying the decision would affect E.U. investments in South Africa. IOL Business Report, 12 Nov 2013, “Gloves come off over EU treaties” (W Khuzwayo).

[35] The BITs with the People’s Republic of China, Cuba, Finland, Greece, Italy, South Korea, Mauritius, Nigeria, Russia, Senegal, Sweden and Zimbabwe.

[36] The BIT with Italy. South African Treaty Register svv “19970509 Italy…To terminate on 15 March 2019”

[37] The BIT with Greece.

[38] The laws of the land should apply equally to all, save to the extent that objective differences justify differentiation. Lord Bingham, 2006, “The Rule of Law” (Sixth Sir David Williams Lecture, Centre for Public Law, Univ of Cambridge), third sub-rule.

[39] Reflecting a “balance” between the “public interest” and interests of those affected. Constitution s 25(3).

[40] And their investments.

[41] Protection of Investment Act s 8(1).

[42] On the Republic.

[43] And the local community.

[44] Direct and indirect.

[45] Protection of Investment Act s 8(2)(a)–(g).

[46] Or be limited to.

[47] Protection of Investment Act s 8(3).

[48] Though listing factors to take into account.

[49] So far as possible.

[50] Bingham, “The Rule of Law” (supra), first sub-rule.

[51] Ordinarily.

[52] Bingham, “The Rule of Law” (supra), second sub-rule.

[53] For trade and industry.

[54] By Gazette notice.

[55] Inter alia.

[56] Protection of Investment Act s 14(b).

[57] Inter alia.

[58] Protection of Investment Act s 4(a), (b), (c).

[59] Protection of Investment Act, Long title.

[60] Indeed, the Act confirms that, notwithstanding anything in it, the government or any organ of state may, in accordance with applicable legislation, take measures which may include redressing historical, social and economic inequalities and injustices. Protection of Investment Act s 12(1)(a).

[61] Protection of Investment Act s 14(b) read with s 4(c).

[62] Bingham, “The Rule of Law” (supra), first and fifth sub-rules.

[63] “Investors have the right to property in terms of section 25 of the Constitution.” Protection of Investment Act s 10 (“Legal protection of investment”).

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Gary Moore

Gary Moore BA LL.B. (Witwatersrand) LL.M. (UC London) is a South African lawyer and Senior Researcher at the Free Market Foundation.

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